Rule Number 1: Always keep your family financially secure

Intro

I've been trying different types of investments for 9 years now. I've had a few things go right and a lot of things go really, really wrong. I'm going to slowly add things that I think I've learned over that time in the next few days (or weeks). It's sort of an open letter to my son as well, so some of it will seem personalized. Let me know if I'm really far off on any of it...

Rule Number 1: Always keep your family financially secure

You need to be prepared for any events that happen. Don't go along thinking life will be spent drinking champagne at cotillions and deciding whether to take the Bentley or Rolls Royce. It won't. Bad things happen, and they can (and will) happen to you.

On top of that, when things go bad, it's almost never a situation in which it a good time to divest assets. For instance, if you lost your job, the job market will likely be atrocious.

Why is that, you ask?

It probably means that your industry (and likely entire economy) is in a downturn. You will be stuck trying to find a job in a very tough job market, and your company won't give you much more than 6 weeks severance because they can't afford to. If the economy is suffering, then the stock market and real estate markets are suffering because people are buying less stuff and have less salary to buy new homes. That means that if you've been buying and holding stocks, you now have to sell your assets at the worst possible time. If you are holding real estate, that portfolio has also dropped, and you will have to sell into a buyers market. If you don't have a lot of equity already, you may end up taking a loss on your investments just to have cash to eat.

Knowing that, you need to have at least 1 years living expense for you and your family in your savings account and CDs before making any other investments. I'm not talking about 1 year of normal life, but a years worth of tough, eating ramen noodles every day while searching for a job money.

Another thing I want to share may seem counter intuitive.

"The richer you become, the less money (as a proportion) that you should have in high risk assets like the stock market."

Starting from nothing and being 31, I'm 85% invested in risky assets for two reasons:
1. I'm not really risking the stability of my life, because I'm a well paid slave anyway.
2. Unless I am fully invested, then I'm not really making any money anyway. (10% of 50,000 is only $5,000)

As I age, however, I'll scale that back tremendously. As I approach retirement and the kid's college years, I'll go into safe assets to ensure that I hold on to the money to pay for them.

If you are successful enough to get rich, you've taken all of the risk necessary to achieve your goal. You can get rates that beat inflation on a money market account if you have a large enough amount of capital. Preserve your capital safely and continue to run your business or whatever vehicle has made your rich. At that point, real estate investing or investing in the stock market are simply bonuses, and they should probably only be 20-30% of your portfolio. If those areas happen to be your business, keep your personal exposure low and use other people's money to continue to finance your real estate or stock transactions.

Finally, I want to point out that keeping your family secure means keeping the money under your watchful eye. Hedge funds for super wealthy and similar structured vehicles are all cons. Most of the hedge fund managers can't beat the S&P. If that's true, then you're better off being in SPY. You can sell it when you want, and you don't have to worry about being ripped off or incurring a high tax bill as they churn stocks. It's not about what the in crowd is doing, but getting and maintaining wealth. The best person to do that is YOU!

Swing Trading - The stock market collapse

The last time I updated, I was beginning my swing trade experiment. Well, I never got one to work out for me. Actually, I only got one stock (PENN) to meet the criteria before the stock market began its collapse. After that, I decided to table the concept because of the extreme volatility. In some regards, that is what you want, but there were too many other “seemingly” good buy and hold bargains to pass up. I’m going to retry swing trading once the market volatility calms down, and I can’t really find well priced stocks.

The first thing I bought was Apple. I got it at $106 (yes it is down 16%). I know that its retail and this is a terrible time to be buying retail, but they have a large market to grow into. With the iPhone launch, their core base of fanatical users for their desktops and laptops, and their apps, I just see them continuing to grow. It’s already a higher end product primarily bought by young working age individuals, and I’m not sure how much those people are being bothered by the collapse except in banking. The P/E at the time was around 18, and I just couldn’t pass it up at that price.

The second thing that I bought was Entergy (ETR). That’s right, nuclear power baby! My dad worked their prior to his retirement, and I know it’s a solid company with a good CEO in Wayne Leonard. Plus, the power bill is the first bill paid. They may make less money, but the economy isn’t going to stop you from having power in your home. Plus, I want to see it through the company break up. If the credit markets ever unfreeze and they get financing, then it’ll unlock a lot of value leading to an explosion in price.

Finally, I’ve done a little dollar cost averaging on my primary holdings of SPY and DIA. I’ve been buying on the way down, but I’m currently out of cash. I’m still buying small amounts in my 401K which is getting matched at 100%, but I’m tapped out of expendable cash right now.

I’m probably going to raise my contribution to the max match, and put my bonus and tax refund into the market should I get one. Other than that, I’ve got some freed up cash since I rented my rental property around a month ago.

Needless to say, I’m a big buyer right now. To answer your question, it is extremely tough to buy now, and it takes a lot of heart to do so. To salve the fears, I’ve been checking the amount of cash generated, amount of cash on hand, and the amount of debt to make sure they can survive a downturn for the foreseeable future. These are still companies. As long as they are in business and the primary consumer for the product wasn’t using large amounts of credit to buy the products, then you should be fine.

If I’m stupid then let me know…

Swing Trade Update RHT

I'm still tracking RHT right now. It has held the lower high, lower low paradigm as it descended further and closed today at $21.94. It is sitting almost exactly on the 30 day moving average and my Fibonacci line.

It also may have formed a T-30 pattern according to the web site I am testing (http://www.swing-trade-stocks.com/t30-chart-pattern.html) . It's not exactly a hammer but it sliced through the 30 day EMA, is right at support, and had higher volume today meaning some traders may have been taken out of the trade. I'm going to post to the Chartwatchers forum to find out for sure.

Either way, I'm keeping an eye on it, and I'll probably enter tomorrow. If this is a true T-30, I should see a low volatility narrow range day tomorrow (Star or DOJI). If this materializes, I'll definitely enter late in the day.



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Updated:

It turns out this is not a T-30. It does, in fact, have to be a hammer.

Swing Trade RHT

The market is still in a little bit of limbo, but it's turned enough that I'm considering going long.

In terms of SPY, the 10 SMA is above the 30 EMA and the Williams %R is at -74. We're looking for below 80, so we're getting there.



The VIX on the other hand is still in the middle. The RSI jumped to 50 from thirty which is a good sign, but it hasn't approached the 70 that we need to say the market is completely oversold. The VIX is still right around the 10 day moving average. It's really in the middle right now.



My potential stock is RHT (Red hat). There is a support line around $22.08 and a Fibonacci line around $21.92. Resistance is around $23.25 The long candles have all been on large volume, and the previous four day decline has been on light volume. It rallied hard off the lows at the end of today's session.

There is no upcoming announcements that I can find, so I am clear on that front. It looks like this is either the first pullback of an uptrend or the beginning of some sideways action.

My plan is to buy tomorrow if it trades above $22.78 and my initial stop will be at $21.80. It's below Fibonacci resistance. Let's see how it goes.

Swing Trade. Still Waiting...

The market is in the middle of a transition right now, so I'm still waiting to enter. I'm ready to pounce when the time is right. Check out the S&P and VIX.

The 10 and 30 are almost converged. The Williams R is almost less that -80 which would indicate going long, but that needs to materialize. In addition, SPY is right below a resistance line at around $129.50




As for the Vix, the RSI is right in the middle of the range. We're looking for above 70 or below 30, and we're at 50. In addition, the VIX and the 10 day SMA are nearly on top of each other. How's that for indecision? I'm hoping that we get to go to the long side, but I would be happy with any clear direction forming soon.

CMG Swing Trade Update

So I was all ready to get into CMG, but the stock didn't make a swing high the next day. It traded down to just above the previous day's low, and my stop was set 20 cents below there. I had to post to the swing trading forum in order to find out what I should so since it looked like it formed a shooting star. I was told that they would avoid the stock anyway since there was so much congestion around the $70 price point. It wouldn't have mattered anyway as the stock (and market in general) rallied on Friday. It never would've hit my buy point. I guess I'll try to locate more possibilities this weekend. Here's the chart showing the shooting star and rally that followed.

Swing Trade Number 2

The market appears to have found a direction, and it looks like I'm going to be short the market again should things go my way. I looked at the S&P and the 10 sma is below the 30 and the Williams R is greater than -20.




The VIX also looks primed for a selloff. The RSI is close to 30 and there is about the VIX is about 10% below the SMA.




I found what I think to be a perfect setup in two possible stock CMG and COH.

CMG looks to have rallied with the market the last couple of days, but it's performance against the S&P and primary competition has been terrible. Earnings were on July 23rd, so we are "blue ocean" on that front.

I figure it could see $65 again very quickly on a sell off and my initial stop will be at $74.70. I plan to buy short below 70.79. While it looks like a 1:1 trade, I think it could go lower than $65 due to its long smooth downtrend and 52 week history.



COH looks like it waffled after earnings but made a good move up during the recent stock rally. It's been a dog against the S&P. Earnings were on July 29th, but I think the results should be baked into the stock by now.

The play would be to get in below $25.99 right now, but I think this one is probably a day away from making a swing high. In any event, I can't risk putting my stop 10% away when I think that is the most I could probably profit. The 52 week low is at $23.22, so I'm not sure it could make it below that. CMG on the other hand has been in the $50's in the last 12 months.

Swing Trade

I got stopped out of my swing trade today of PENN at $29.03, and I lost about 3% of my "trading" capital on the trade. I made one critical mistake, and that was taking on too much risk for my possible return. From now on, I'm going to seek 2 for 1 on each trade.

I'm going to continue with the experiment, but I haven't been able to find any good setups (or what I think are good setups). Plus, the indicators that say whether I should be long or short are in the middle. The market appears to be going sideways as its been between 124 and 128 for almost a month now which probably explains it. I'll keep looking, but it's probably just as well to sit and wait on the market to make a decision up or down.

Here's the final chart of PENN. Thanks for the 4 days of heartache!

I'll win one soon. I'm due...as if that matters.

Swing Trade of PENN

So I tried my first swing trade on June 29th using a method I found on the internet at http://www.swing-trade-stocks.com/. I back tested it, and it seems to work fine. I figured what the heck. I can buy and hold and lose or I can try to make money. Goldman Sachs is making billions trading, so why can't I make a little money.

I decided to short in PENN on Wednesday after it made a swing high. I made two buys. One after it completed a swing high at support at 28.25 and once again after it had dropped 1% to $27.93. It looked like a good setup for Thursday as the bearish engulfing chart pattern had formed.

Of course, It shot up on Thursday in a down market no less, but didn't hit my stop. Who the hell is buying a stock in a downtrend in a consumer driven stock on a day like that? No, seriously, I'm new to this and I would like to know. Anyway, It came back in to me today and closed where I'm around break even.

Looks to be going sideways right at a resistance line, but there's no need to try to predict the future. We'll see how it goes on Monday. I'll ride the plan and see how it goes.

Check out the chart.